Double-entry Accounting System

4.3.21 Analysis of supplies expense adjusting entry

Adjustment No. 7. On May 15, Huske's Consultants acquired supplies for $400. At the end of the accounting period $100 of supplies remained on hand. The difference ($300 = $400 - $100) was used during the year and should be expensed. The adjustment decreases assets and equity. The decrease in assets (Supplies) is recorded as a credit, and the decrease in equity (Supplies Expense) is recorded as a debit:

Illustration 4-42: Effect of supplies expense in T accounts

Assets		=	Liabilities	+	Equity
Supplies					Supplies Expense
	Credit (A7) -300				Debit + Expense [ - Equity] (A7) - 300

This is an asset use transaction:

Illustration 4-43: Effect of supplies expense in the horizontal model

Assets	=	Liabilities	+	Equity	Rev.	-	Exp.	=	Net Inc.	Cash Flow
(300)	=	n/a	+	(300)	n/a	-	(300)	=	(300)	n/a

4.3.22 Presentation of T accounts for the accounting period

We will transfer all the data to T accounts. Note that we meet the two requirements about the double-entry recording process:

Total Debits = Total Credits

Total Assets = Total Liabilities + Total Equity

If the two requirements are satisfied, we are sure that all amounts were posted. At the same time, we cannot say for sure whether the amounts were posted to correct accounts; the fact that debits equal credits does not imply correct accounts were affected by journal entries.

Illustration 4-44: Summary of all accounts with transactions

Assets		=	Liabilities		+	Equity
Cash			Accounts Payable			Contributed Capital
(1) 10,000 (5) 4,000 (7) 1,500 (8) 3,600 (9) 700	(4) 600 (6) 2,400 (10) 3,000 (11) 2,000 (12) 400 (14) 300		(12) 400	(2) 400 (13) 800			(1) 10,000
							Bal. 10,000
				Bal. 800
						Consulting Revenue
			Unearned Revenue				(3) 2,600 (9) 700 (A3) 1,800
			(A3) 1,800	(8) 3,600
Bal. 11,100				Bal. 1,800
							Bal. 5,100
Accounts Receivable			Notes Payable
(3) 2,600	(7) 1,500			(5) 4,000		Interest Revenue
Bal. 1,100				Bal. 4,000			(A4) 100
							Bal. 100
Supplies			Interest Payable
(2) 400	(A7) 300			(A1) 163		Operating Expense
Bal. 100				Bal. 163		(4) 600
						Bal. 600
Prepaid Rent			Salaries Payable
(6) 2,400	(A2) 1,167			(A6) 600		Salaries Expense
Bal. 1,233				Bal. 600		(A6) 600
						Bal. 600
Notes Receivable
(10) 3,000						Office Maint. Expense
Bal. 3,000						(13) 800
						Bal. 800
Interest Receivable
(A4) 100						Interest Expense
Bal. 100						(A1) 163
						Bal. 163
Office Equipment
(11) 2,000						Depreciation Expense
Bal. 2,000						(A5) 800
						Bal. 800
Accum. Depreciation
	(A5) 800					Supplies Expense
	Bal. 800					(A7) 300
						Bal. 300

						Rent Expense
						(A2) 1,167
						Bal 1,167

						Distributions
						(14) 300
						Bal. 300

Assets 17,833		=	Liabilities 7,363		+	Equity 10,470
Assets 17,833		=	Claims 17,833

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